Risks, weaknesses and problems of (tropical) hardwood investments

Things to consider before investing in (tropical) hardwood plantation projects

• Investing and speculation always involve risk. Whether high risk - high profit or low risk ("safe") - low profit investments, there's always a chance of losing your money or not getting the expected revenues. The recent worldwide financial crisis with big banks going bankrupt illustrates this more clearly than anything else.

• If investing in anything else than collective investment fund with a proven track record you should be a professional with a lot of "risk" money to play with. Don't put your savings and pension into anything else but the safest of the safe!

• Pushy, slick advertisement campaigns with a lot of nice phrases and beautiful pictures but little actual information trying to convince you to buy something with unrealistic promises are often a indication something fishy is being sold. If it sounds to good to be true, it probably isn't true!. Dig and dig deep!. If not sure don't do it!

• Annual revenues of 20% per year or more were promised (and expected) for this type of investments. This has been proven to be impossible. Only standard forestry investments revenues can be expected, if projects are set up and managed in a professional way by forestry experts, that is. First and foremost forestry projects need to operate on large scale to be exploited efficiently and are a long term investment.

• Hardwood investment schemes have been sold in The Netherlands for 15 years. Most investors haven't even received enough revenues to cover their original investments. The ones that haven't lost money on it are the lucky ones. Some companies selling investments didn't actually invest the money in anything (scams), a lot couldn't cover operating costs without getting ever more and more people to invest or selling their assets multiple times, a very select few managed to get something slightly professional running and are still in business.

• Unregulated direct ownership is especially something to be very skeptic about. It is mostly used to avoid strict regulations imposed on collective investment funds. Just as unregulated says, it's unregulated. After about 10 years of scamming in The Netherlands the AFM has prohibited companies/ people to sell these kinds of investments to small private investors by imposing strict regulations on selling any investments to small private investors. After this only a few investment brokers were able to get a license to keep operating in this business. Any company offering this type of investment is highly suspect, be aware!

• This sector/ business often attracts people previously involved in shady financial scams.

• Collective investment funds have capacity and expertise to investigate all kinds of possible investments. If they don't invest in certain types of projects it is for good reason.

• It is technically impossible to manage individual hectares for individual investors. If not managed on large scale no efficiency of scale is possible which is essential in forestry. If a company wants to sell you "total control" over your trees it's a scam. This type of scam, and others alike, is often used to avoid collective investment regulations.

• Be aware of "labels", certifications, awards and anything else being used to give something an air of credibility. (example: SIPP Approved). Search on the internet what these labels mean and don't mean.

• Any promised and/ or expected tax reductions should be investigated thoroughly. If not realized by some artificial investment construction they could also be temporary due to lack of regulation. They are also different in each country.

• Ethical (forestry/ hardwood) investments is a meaningless advertising phrase. Don't be fooled by an ethical label.

• CO2 (carbon dioxide) fixation and anything else to do with reducing the risk on a runaway greenhouse effect is a hype and not something any profitability can be safely constructed upon in the future.

• Ecological (forestry/ hardwood) investments is another overestimated claim. For the most part the ecological value of these project consists of the simple fact trees are being planted. Any other ecological value could lie in protecting existing forest remains and integrating/ protecting ecological corridors on the plantation lands. Also replanting and abandoning and long term protection of the used land after final harvest is one of the mentioned possibilities. However, all these are rarely implemented and are even difficult to realize when best intentions are present. Due to local regulations and laws, changing financial situations of the companies involved and lack of specialist knowledge this is a highly delicate matter. To get any certainty on these aspects ask for contracts, papers and whatever proof is available to support such claims.

• Socially responsible (forestry/ hardwood) is also a meaningless advertising phrase. If companies in countries overseas use local workers on their plantations this is probably good due to improving local job opportunities. It's also impossible to run a plantation without local workers. Nevertheless normally most higher functions will be staffed by westerners and most revenues will clearly go back to other countries. However, with good in-house training and education possibilities a "socially responsible" enterprise might be possible but is also nearly impossible to get useful information about.

See also

• Scholtens and Spierdijk the case of tropical timber investment funds in the Netherlands.pdf

• Sicirec Rating System

Apart from the above mentioned list of project characteristics that one should check before investing in such plantation forestry projects, one could also utilize the elaborate rating list of Sicirec and its explanatory manual. Sicirec S.A. (now part of Sicirec Group BV) for many years used this rating list to provide investors with comparative ratings of the various plantation forestry offers on the investment market. Projects used to ask for ratings by Sicirec in case they had the confidence that they would emerge as "above average" in the ratings, and would pay for these services, including control visits by Sicirec staff to those plantations.

Whereas Sicirec nowadays does not provide updates of ratings of all these projects any more, you may utilize the Sicirec Rating System and its instruction manual as a check list mentioning the most important aspects and characteristics of plantation forestry projects that ideally should be checked before deciding to invest.

Except for a short summary, the Sicirec Rating System is no longer published on their website, but the complete rating manual (including the relative weight of all the rating parameters) is available on this wiki: Sicirec Rating System

You can also view a graphical overview schedule of this Rating System, all Rating Criteria and their relative weight.